Inflation would be 10 percent per year if house prices were included
Ever wonder what the inflation statistic would be if it included some of the big purchases that people actually make, e.g., houses? A Wall Street economist, Joe Carson, recently wrote a piece on the current inflation situation:
Including house prices in the official consumer inflation statistics would lift the reported figure to roughly 10% and rival the early 1980s. Still, excluding the non-market shelter index from the official price statistics shows consumer price inflation running as hot as it did during the oil price spike of 2008. Both represent the fastest increase since the early 1980s, illustrating the breadth and speed of the current inflation cycle.
Other measures of inflation have already exceeded the reported figures of the early 1980s. Core intermediate prices for materials and supplies, which are part of the monthly producer price report, have jumped over 20%, well above the high readings of the 1980s.
If official government inflation is 6 percent, is it reasonable to say that 4% more would be added if actual house prices were included? From the same piece:
The initial signs of a new inflation cycle appeared in the housing market. In 2020, during the pandemic, house price prices rose 10%, according to the Case-Shiller. That was more than three times faster than the gain of the prior year and the most rapid increase since 2013. Some have argued that high and rising prices are self-correcting as buyers balk at the high prices. Yet, after increasing 10%, house prices posted a 15% increase, and the latest data shows a record 19.5% increase in the past year.
19.5 percent in this one component does seem as though it could translate to 4 percent for prices overall.
House prices in our neighborhood are so high that one homeowner has subleased the backyard to a research facility:
Related:
- “Owners’ Equivalent Rent and Price Stability” (PennMutual): In 1983, the Bureau of Labor Statistics (BLS) made a change to an integral component of inflation indexes. The adoption of owners’ equivalent rent (OER) to estimate shelter costs meant home purchases would no longer be considered a consumption expenditure but instead a capital asset or investment. OER is determined by a monthly survey of consumers who own a primary residence. The survey asks how much consumers would pay to rent instead of own their home. OER represents approximately 25% of the Consumer Price Index and 12% of personal consumption expenditures (PCE). … Why has OER exhibited such stability versus market-based measures of shelter costs? Economists have observed that owner-occupied rental estimates tend to be “sticky” relative to market-based rental costs. Homeowners tend to underestimate rent appreciation during expansionary periods and overestimate it during recessionary periods. … The idea that home purchase costs are not an expenditure but an investment is likely difficult to understand for first-time homebuyers confronted with unaffordable housing options.
- What if you want to live in your car (on “camping mode”) instead? Tesla prices were up about 10 percent in the past few months and went up another 5 percent today (Reuters)